Declan's week: spending money like water

Ofwat reckons the public won't stomach huge increases

We always want better service and higher quality - but are we prepared to pay for them? Breakfast's main business presenter Declan Curry is doubtful:

There's an old saying: you get what you pay for.

It always pops into my mind when I hear complaints about service on the low-cost airlines.

The water bosses were the original fat cats. Many of you argued in your emails and text messages that shareholders should pick up the tab for these improvements - that they should take some pain along with their gains

Of course, we all expect that we'll get to our destination promptly, and with as little inconvenience as possible.

And I'm the first to lose my rag if the airline mucks things up.

I can't describe how cross I was when Ryanair bumped me off a flight three years ago because I arrived at check-in 28 minutes before departure, rather than the 30 minutes set down in the rule book.

But I suppose they were right to do so. After all, there's only so much we should expect from a ticket that costs a few quid (plus tax).

Wiggle room

The budget carriers can only offer bargain-basement fares by running a shoestring operation.

They do it by turning their planes around more quickly at airports, having fewer spare craft sitting idle as back-ups, hiring fewer staff and working them harder than other airlines.

When everything goes according to plan, it's great. But there's less wiggle room if things go wrong - from bad weather to misplaced baggage to stubborn birds that won't get off the runway quickly enough.

All this came back into my head this week when we were talking about water.

The water companies in England and Wales want massive increases in our bills. They say they need an extra £21 billion to replace old pipes and sewers, improve water quality and protect the environment.

If the water companies get their way, the average bill would rise by around 30 per cent over five years.

The typical English or Welsh household would pay around £306 a year, instead of the current £234.

Householders in the north west of England could face the steepest hike of all. The local water company there - United Utilities - has asked for a 70% rise in its bills.

The watchdog barks

The water watchdog OFWAT will make the final decision. It has already said the planned increases are enormous and may not be necessary.

Put another way it doesn't think consumers will stomach price hikes of that size.

There's a good reason for that view. Even though they've been falling in recent years, water bills are now nearly twice as expensive as they were when the industry was sold off.

Back then, the average household paid just £120 a year.

The events after privatisation also make it harder to call for price rises today.

Fat cats

The water bosses were the original fat cats. It was the big increases in their salaries that started the whole fuss about executive pay.

And don't forget shareholders got big payouts too - thanks to some bumper dividends.

Many of you argued in your emails and text messages that shareholders should pick up the tab for these improvements - that they should take some pain along with their gains.

But some of them have done so already.

United Utilities took hundreds of millions of pounds off its investors last year, by creating new shares in the company and selling them off on the stock market.

That fund-raising will pay for some of the improvements the company is now planning.

But the company may find it difficult to come back and ask its shareholders for more. There are only so many times it can draw from the well. And water shares aren't the lucrative bet they once were. The share price has been straining under the weight of price controls, imposed by the watchdog. It's now very difficult for companies to make fat profits on their water business here at home.

Cleaning up

So there's less reason for shareholder to stump up extra cash. Of course, the companies could borrow the money they need. The only problem is: many of them are swimming in debt already. The companies' trade body told me the City's big lenders are not keen to extend them new overdrafts.

Which brings us back to water bills.

In the end, we will get what we pay for.

If we want cleaner water, fewer hosepipe bans during the summer, and less sewage in the sea, we will have to pay for it.

Even if the water companies do get the massive increases they've requested, our tap water will probably still be a better bargain than bottled water - and we seem to have no qualms about paying for that.

Declan Curry presents the business news for Breakfast live from the London Stock Exchange, each week-day morning from 6am